Market responses to cash dividends distributed from capital reserves

Liu, Yen-Yu; Lee, Pin‐Sheng

doi:10.1016/j.frl.2021.102389

Cited by 4 publications

(2 citation statements)

References 12 publications

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“…Other certain studies investigate market reactions to M&A activities influenced by CEO power [ 6 ]. Similarly, there are numerous studies on market reactions to dividend payout [ 7 , 8 ] or share repurchase events [ [9] , [10] , [11] ]. While [ 12 ] focuses on analyzing market reactions in two scenarios: increased dividend rates and decreased dividend rates, then [ 13 , 14 ] investigate the differences in market reactions in case of cash dividend and stock dividend.…”

Section: Introductionmentioning

confidence: 99%

Is the market biased in M&A, dividend payment, and share repurchase events?

Quang

2024

Heliyon

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Section: Introductionmentioning

confidence: 99%

Is the market biased in M&A, dividend payment, and share repurchase events?

Quang

2024

Heliyon

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“…Relevant bills were passed in 2012 by the authorities, and companies have been allowed to issue cash dividends from capital reserves since 2011, provided there are no accumulated losses. As with traditional cash dividends distributed from retained earnings, the variation in the dividend payout ratio is positively correlated with market responses if cash dividends are distributed from capital reserves (Liu and Lee, 2022). Liu et al (2022) also found that companies may increase the source of cash dividends according to this amendment to avoid large fluctuations in dividends that adversely affect the company.…”

Section: Introductionmentioning

confidence: 99%

Correlation between distribution of cash dividends from capital reserves, ultimate controlling shareholders and corporate governance

Liu

Lee

Yang

2022

PAR

Self Cite

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Purpose This study aims to discuss whether a new accounting policy can help enterprises withstand operating risks and whether corporate governance can play a supervisory role. Taiwan took the lead worldwide in allowing companies to distribute cash dividends from capital reserves. Compared with traditional cash dividends distributed from retained earnings, this move was aimed at maintaining the stability of cash dividends and helping listed companies address the risks of temporary downturns. However, the distribution of cash dividends from capital reserves may violate the principle of capital maintenance and damage creditors’ equity. The authors sought to examine whether corporate governance could play a supervisory role. Design/methodology/approach The present study targeted Taiwanese listed companies and cited data from the Taiwan Economic Journal. The study period was from 2011–2019. The authors tested the hypotheses using the least square method. Findings The results showed that ultimate controlling shareholders of listed companies can maximize their own interests through ownership arrangements, whereas corporate governance cannot play a supervisory role nor protect creditors’ equity. The findings provide insight on whether, in the development process of corporate governance, appropriate measures are taken to protect creditors’ equity in addition to shareholders’ equity, or achieve a good coordination of interests among all stakeholders. Originality/value The ultimate controlling shareholders or directors of a listed company would seek to maximize their own interests, and transfer the operating risks to creditors through the arrangement of dividend policy, thus harming creditors’ equity. However, independent directors cannot play a supervisory role. The authors inferred that corporate governance standards previously focused on the shareholder level or alleviation of the agency problem between controlling shareholders and non-controlling shareholders but ignored creditors’ equity.

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